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Ch 8 3 Stages of Digital Transformation (Bonnet, 2022)

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HBR / Digital Article / 3 Stages of a Successful Digital Transformation
3 Stages of a Successful
Digital Transformation
You have to walk before you can run. by Didier Bonnet
Published on HBR.org / September 20, 2022 / Reprint H077PJ
Illustration: Daniel Lievano
Most digital transformations fail. Various studies from academics,
consultants, and analysts indicate that the rate of digital
transformations failing to meet their original objectives ranges from
70% to 95%, with an average at 87.5%. Yet, digital transformation has
been at the top of corporate agendas for at least a decade and shows
no sign of slowing down. On the contrary, many commentators have
highlighted the accelerating impact of the Covid-19 period on digital
transformation.
Copyright © 2022 Harvard Business School Publishing. All rights reserved.
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HBR / Digital Article / 3 Stages of a Successful Digital Transformation
My consulting and teaching with hundreds of executives points to three
main reasons why digital transformations fail.
First, when firms set their objectives (if they do so at all) they tend to be
over-optimistic in their expectations of both the timing and the scope of
the outcome. They think it’s like waving a magic wand.
The second aspect behind failed digital transformation is poor
execution, including lack of proper governance, prioritizing technology
deployment over user adoption, adopting the wrong metrics, and the
like.
The third — and least appreciated — hurdle is also the most interesting,
and it has to do with the pace of leading and managing the transition
between the old and the new.
In short, there is a digital learning curve; you have to walk before you
can run. For a digital transformation to succeed, senior leaders need to
be aware of this learning curve, which has three distinct stages.
Three stages of digital transformation
The three phases present different opportunities for organizational
learning. The first two stages, modernization and enterprise-wide
transformation, are focused on reshaping the existing business. The last
phase is about new business creation and uncovering new sources of
value.
Our experience shows that it’s hard to avoid the school of hard knocks at
each stage. If you jump to step 2 or 3 before succeeding at step 1, you’re
likely to fail.
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HBR / Digital Article / 3 Stages of a Successful Digital Transformation
Modernization (step one) is about simplifying and digitizing existing
processes and functions. For customer experience it can be about
designing customer apps or implementing new self-service touch
points. For operations, it can be about connecting products and digitally
re-engineering core processes. For employee experience it can be
about automating HR processes or providing a self-service portal for
employees.
Do these digital programs transform the organization? Most likely not.
This phase is often undervalued or even derided, but it shouldn’t be.
Just like the foundations of a house, it makes the organization digitally
stronger and smarter. It also provides reasonably quick returns that can
fuel more complex digital investments. And it is a great chance for the
organization to improve its digital capabilities.
Enterprise-wide transformation (step two) is a complex cross-valuechain change effort — for example, a retailer wanting to have a
fully integrated customer experience across all its physical and digital
channels. For operations it can be an internet-of-things application
for condition maintenance or automating order-to-cash processes. For
employee experience it can be institutionalizing agile methods of
working or establishing a continuous learning and re-skilling culture.
Are these transformational efforts? Absolutely. Aligning traditional
organizational silos, establishing proper governance models, adding
new talents and the like — these are all critical muscles to develop for
transformation success.
Enterprise-wide transformations are usually focused on improving
existing operations. But, when successful, they very often open up new
value creation opportunities, for example by reaching new customers
or finding new efficient ways of running operations. Enterprise-wide
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HBR / Digital Article / 3 Stages of a Successful Digital Transformation
transformations are cross-functional and complex, but are mandatory
learning phases on the journey to digital-transformation maturity.
New business creation (step three) is about increasing the size of the
existing pie or creating new revenue lines. For customer experience, it
can be moving from selling products and services to new subscriptionbased business models. For operations it can be using data and analytics
to accurately predict operational performance of products or systems.
These are true transformations because they challenge the existing
processes, structures, and capabilities of the organization and require
new ways of working. Leadership is key, as this is about transitioning
from the existing model of operations to new ones. Often, this phase
also demands rethinking the boundaries of the organization as it moves
from traditional linear supply chains to ecosystems. It requires a high
level of digital transformation maturity.
Are these three digital transformation horizons completely linear?
Probably not, in the sense that most organizations will manage a
portfolio of initiatives that may cover all three areas. For instance, they
may undertake a certain amount of modernization to deliver quick
wins, while at the same time having enterprise-wide global programs
and/or innovating business models through experiments and controlled
pilots.
But from an organizational learning perspective it’s rare to find
examples of digital leaders in large corporations that have leapfrogged
the early phases. The key to more successful digital transformation is to
not skip ahead: Start with step one and invest the focus and resources
to get it right. Growing your organization’s digital maturity through
the digital transformation corporate learning curve will increase your
chances of success.
Copyright © 2022 Harvard Business School Publishing. All rights reserved.
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HBR / Digital Article / 3 Stages of a Successful Digital Transformation
This article was originally published online on September 20, 2022.
Dr. Didier Bonnet is Professor of Strategy & Digital Transformation
at IMD in Switzerland. He is coauthor of “Leading Digital:
Turning Technology into Business Transformation” and “Hacking
Digital: Best Practices to Implement and Accelerate Your Business
Transformation”. You can follow him on Twitter @didiebon.
Copyright © 2022 Harvard Business School Publishing. All rights reserved.
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